The simplest form of setting up a company is to establish a sole proprietorship. This means that a natural person sets up a company. This individual operates the company as its sole owner and assumes full personal liability for it.
Features and pre-requisites of sole proprietorships
- The owner of the company is a single natural person who operates the company (in contrast to legal persons, for example a limited liability company or public limited company).
- The individual can be the owner of the company or business tenant.
- Sole proprietors operate the company in their own name and on their own account. They assume unlimited liability for the debts of the company with their own personal assets. However, they alone are entitled to the profits generated by the company.
- Sole proprietors can have employees. This means that they can conclude employment agreements.
- A person can be a sole proprietor if he or she has Austrian citizenship or is a citizen of an EU/EEA member state or Switzerland. An individual who has a residence permit for Austria entitling him or her to carry out a trade may also set up a sole proprietorship. Individuals from other countries will only be permitted to carry out a trade in Austria if granting such a permit occurs on a reciprocal basis between the person's native country and Austria.
- It is required for the individual to have a place of residence in Austria, the EU/EEA or in Switzerland.
More features and pre-requisites of sole proprietorships
A person can be a sole proprietor if he or she has Austrian citizenship or is a citizen of an EU/EEA member state or Switzerland. An individual who has a residence permit for Austria authorising him or her to carry out a trade may also set up a sole proprietorship. Individuals from other countries will only be permitted to carry out a trade in Austria if there is intergovernmental reciprocity in granting these permits between the person's native country and Austria.
The sole proprietor can be the
- owner of the company or
the business tenant.
A sole proprietor works for himself or herself and on his or her own account. On one's own account means that the sole proprietor gets the money himself or herself for the work performed.
The owner of a sole proprietorship can have employees. This means that he or she can conclude employment contracts. A sole proprietor may also pass on contractual orders to other companies.
Steps to set up a sole proprietorship in Austria
If you would like to set up a sole proprietorship in Austria, the following steps should be taken:
Business registration
The managing director under commercial law must be involved in the business operations of the sole proprietorship and must be employed for at least half the standard weekly working time as an employee with full compulsory insurance coverage. Sole proprietors require a trade license in order to carry out their business activities.
A distinction is made in Austria between:
- Licensed trades
- Regulated trades
- Free trades
In this regard, all the professional, commercial and legal prerequisites required to obtain the trade license must be fulfilled as the basis for being permitted to independently pursue a regulated trade. No proof is required for free trades.
If the proof of competence is not provided, it is possible to appoint a managing director under commercial law. Read more about trades in Austria.
Entry into the Commercial Register
The entry of the sole proprietorship into the commercial register is only legally stipulated if the company generates revenue of more than € 700,000 per fiscal year in two consecutive fiscal years or generates revenue exceeding € 1 million in one fiscal year. However, sole proprietorships can be voluntarily entered into the Commercial Register in Austria even if they do not meet the above-mentioned requirements. Sole proprietorships which are not entered into the Commercial Register can determine their income (profits/losses) on the basis of an income and expenditure account.
More about the entry into the Commercial Register
A natural person operating a company can have the sole proprietorship voluntarily entered into the Commercial Register at any time.
The entry into the Commercial Register is only mandatory if the sole proprietorship is subject to the obligation to prepare financial statements because
- the company generates revenue exceeding € 700,000 per fiscal year in two consecutive fiscal years or
- the company generates revenue of more than € 1 million in one year.
In principle, the entry into the Commercial Register involves the payment of a fee. However, within the context of the startup of the company, the costs are partly financed on the basis of the New Business Support Act.
Notification to the social insurance system and tax office
Business activity must be reported to the tax office. The commencement of business operations must be reported to the responsible tax office within one month after beginning the business activity. Moreover, it is also necessary to notify the tax office of the location of the company.
Sole proprietorships are subject to compulsory insurance with the Social Insurance Institution for the Self-Employed (SVS) in accordance with the Social Insurance Act for Commerce and Trade. The social security benefits stipulated under this law include mandatory pension, health and accident insurance. The compulsory insurance begins on the day of registering the business. Company founders have to register with the Social Insurance Institution for the Self-Employed within one month after commencing their commercial operations. The registration process with the social insurance system can take place via the Business Service Portal (USP) within the context of the electronic startup.
Company name and trade name
Sole proprietors officially entered in the Commercial Register can make use of personal names, factual names or fantasy names as the company name (i.e., the name of the company as recorded in the Commercial Register, under which all business activities are carried out). In this regard, a compulsory suffix such as "registered entrepreneur" or an abbreviation of this designation (e.g., "e.U.") must also be included.
Entrepreneurs who are not registered in the Commercial Register have to make use of their first name and last name in all their business transactions. They are not allowed to use any company names which are protected under the stipulations contained in the Companies Register Act. This protection means that no other company is permitted to use the registered company name. An establishment designation (trade name) can also be used as a means of more efficiently marketing the company.
Taxes levied on sole proprietorships
The sole proprietor is required to pay an income tax on profits as well as a valued added tax. The value added tax is calculated for all deliveries - and for all services rendered. The value added tax must then be subsequently paid to the tax office.
Liability of sole proprietorships
Assistance provided by ABA - Invest in Austria on setting up a sole proprietorship in Austria
If requested, the experts at ABA - Invest in Austria will provide support in handling the processes mentioned above and assist company founders from abroad. ABA can also clarify which type of trade is involved for the planned business activity and which prerequisites must be fulfilled.
The employees of ABA will be glad to help when it comes to submitting applications for acceptance of a foreign business license or searching for a managing director under commercial law and look forward to hearing from you.
Questions on establishing a sole proprietorship in Austria?
ABA - Invest in Austria is the first point of contact for international companies aiming to set up their own businesses in Austria. The services offered by ABA – Invest in Austria are tailor-made and free of charge for the investor or company founder.
Contact expertsDownload business guide "Establishing a Sole Proprietorship"
You can find detailed information on setting up a sole proprietorship in Austria along with related tax and legal aspects in Austria in our online brochure "Establishing a Sole Proprietorship".
FAQs: Establishing sole proprietorships in Austria
What are the advantages and disadvantages of setting up a sole proprietorship?
Advantages
- Quick, simple founding: in principle, the sole proprietorship is created at the time the business is registered.
- Income-expenditure accounting until annual revenue of € 700,000 is generated
- Possibility to be exempt from mandatory social insurance (small business exemption regulation)
Disadvantages
- Unlimited personal liability
- If necessary, a trade license must be personally acquired. If not, it is possible to appoint a managing director under commercial law.
What is a single-member limited liability company?
A single member GmbH (previously called a one-man GmbH) is a limited liability company founded by only one person and in which one person acts as the sole shareholder and the sole managing director.
Which types of business licenses exist in Austria / What is a trade license?
As a rule, in order to carry out a trade in Austria, an individual requires a business license. The limited liability company is entitled to carry out a trade once it is entered into the Commercial Register.
Nützliche Links für Selbstständige aus dem Ausland in Österreich
You will find additional information here about founding a single-member limited liability company and our 15 tips for successfully setting up a business in Austria.
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